BAY CITY — On Monday, the Bay City Education Association agreed to a contract with Bay City Public Schools that kept the district from operating with a budget deficit this year.

As part of the agreement, the teacher’s union is cutting $1.6 million from their wages and benefits through the remainder of the school year. The deal reduces teachers’ salaries by 2.7 percent, puts a freeze on pay and step increases and requires teachers to contribute 24 percent to health insurance plans.

“Education, like so many areas of our society right now, is under economic stress,” Newcombe said. “I certainly think we need to recognize that our employees in our school district are making sacrifices that are hitting them in their pocketbooks.”

Newcombe said the two sides had been in negotiations through 2011, but fluctuations in state funding made it hard to pinpoint what the final deficit was going to be. The district has seen total expenditures drop from $80.2 million in 2009-10 school year, to $74.6 in 2010-11 to a projected $67.3 million this year.

The teachers aren’t alone in making concessions for the school. In June, the eight non-teacher school groups, including principals, bus drivers, custodians and others, agreed to pay freezes and higher insurance deductibles. The district’s administration agreed to the same changes in July.